Capital Gains Tax Reliefs and Exemptions and Offsets Against Assessable Income.
Introduction:
Jack, a former cattle farmer, bought a property of fifty hectares on 15 June
2009 for $410,000 with a house on a one hectare fenced off area. He ran cattle on the remaining forty-nine hectares, which had already been fenced off into suitable paddocks, from 1 July 2009. On 31 January 2011,
Jack subsequently sold the fifty hectares due to ill health at the age of 35; this sale produced a capital gain of $80,000. During this time Jack had losses from his cattle farming in both the 2009/2010 and 2010/2011 financial years of $2,350 and $1,250 respectively, and also received income from other sources in those years ($45,000 and $23,000 respectively). Issues:
Jack is seeking advice in regards to capital gains exemptions and reliefs that can be attributed to the sale of the property. Jack is also seeking advice in reference to offsetting his losses from his cattle farming enterprise against other assessable income that he earned in the
2010/2011 financial year. The issue of capital gains exemptions and reliefs available can be covered under Division 152 of the Income Tax
Assessment Act 1997 (Cth) (furthermore referred to as ITAA97) which allows exemptions to small businesses for the capital gains tax so long as specific conditions are satisfied. Section 115-A of ITAA97 also allows for discounts for specific types of businesses. The issue of offsetting losses form cattle farming against other income earned is covered in Division 35 of the ITAA97, which covers the deferral of losses that arise from business activities that are of a non-commercial nature.
3
Issue of CGT exemptions and reliefs:
Legislation/Rule:
In regards to the exemptions and reliefs available for the Capital Gains
Tax, the existence of a capital gains asset and the occurrence of a Capital
Gains Tax event must be identified first. Section 108-5 of the ITAA1997 that a CGT asset is referred to as ‘any kind of property;’1.
Section 104-10 of the ITAA1997, covers the
Jack, a former cattle farmer, bought a property of fifty hectares on 15 June
2009 for $410,000 with a house on a one hectare fenced off area. He ran cattle on the remaining forty-nine hectares, which had already been fenced off into suitable paddocks, from 1 July 2009. On 31 January 2011,
Jack subsequently sold the fifty hectares due to ill health at the age of 35; this sale produced a capital gain of $80,000. During this time Jack had losses from his cattle farming in both the 2009/2010 and 2010/2011 financial years of $2,350 and $1,250 respectively, and also received income from other sources in those years ($45,000 and $23,000 respectively). Issues:
Jack is seeking advice in regards to capital gains exemptions and reliefs that can be attributed to the sale of the property. Jack is also seeking advice in reference to offsetting his losses from his cattle farming enterprise against other assessable income that he earned in the
2010/2011 financial year. The issue of capital gains exemptions and reliefs available can be covered under Division 152 of the Income Tax
Assessment Act 1997 (Cth) (furthermore referred to as ITAA97) which allows exemptions to small businesses for the capital gains tax so long as specific conditions are satisfied. Section 115-A of ITAA97 also allows for discounts for specific types of businesses. The issue of offsetting losses form cattle farming against other income earned is covered in Division 35 of the ITAA97, which covers the deferral of losses that arise from business activities that are of a non-commercial nature.
3
Issue of CGT exemptions and reliefs:
Legislation/Rule:
In regards to the exemptions and reliefs available for the Capital Gains
Tax, the existence of a capital gains asset and the occurrence of a Capital
Gains Tax event must be identified first. Section 108-5 of the ITAA1997 that a CGT asset is referred to as ‘any kind of property;’1.
Section 104-10 of the ITAA1997, covers the
Bibliography: Ltd, 14th revised edition, 2011) Kenny, Paul, Australian Tax 2011 (LexisNexis Butterworths, 2011) Woellner et al, Australian Taxation Law (CCH Australia Ltd, 21st revised edition, 2011)